Research and Development tax credits

R&D Tax credits is a scheme designed to maintain Britain’s global reputation for innovation. Encouraging business’ to grow, expand, and reach their full potential by increasing their spending in Research & Development. 

What counts as Research & Development?

To qualify for R&D Tax Credits, the work undertaken must be part of a specific project to make an advance in science or technology.

The key questions you must answer when deciding whether a project qualifies as R&D are:

  • Whether the project was looking for an advance in science and technology. The advance cannot be an existing technology that has been used for the first time in your sector.
  • Whether there is uncertainty – You should be researching or developing something that is not known to be feasible at the time.
  • How the uncertainty was overcome – You must be able to explain how you tried to overcome the uncertainty above, and whether it was unsuccessful or not.
  • Whether a professional in the field could work this out. You need to be able to explain how a professional could not easily work out the advance, the fact that there have been unsuccessful attempts could prove this.

Small/Medium Company

How much can I claim?

A small and medium-sized enterprise is one with less than 500 staff and a turnover of under €100m/a balance sheet total under €86m.

R&D relief allows small or medium companies to:

  • Deduct an additional 130% of their research and development cost from their yearly profits. A total of 230% tax reduction.
  • Claim a tax credit if the company is making a loss, worth up to 14.5% of the surrenderable loss.

What costs?

Costs that can be claimed:

  • Direct R&D staff costs – Wages, class 1 NI and pensions.
  • Subcontracted staff costs – Relief is given on 65% of payments made to subcontractors.
  • Subcontracted R&D – Again relief is restricted to 65%.
  • Consumable items
  • Software directly used in the R&D
  • Clinical trial volunteers
  • Prototypes

Costs that cannot be claimed:

  • the production and distribution of goods and services
  • capital expenditure
  • the cost of land
  • the cost of patents and trademarks
  • rent or rates

Large Company

How much can I claim?

Large companies can claim R&D expenditure credit. The RDEC is a tax credit for 11% of your qualifying R&D expenditure up to 31 December 2017 and 12% from 1 January 2018. This is fully payable for loss-making companies.

What costs?

  • Staff costs
  • Subcontractor Costs
  • Consumable items
  • Software directly used in the R&D
  • Clinical trial volunteers
  • Prototypes
  • Contribution to independent research

How long does the company have to make this claim?

We can make a claim by including the R&D relief on your company corporation tax return. This is due within 9months and 1 day of your accounting period end. We can also send an amended tax return within 12 months of this date. Effectively giving you two years from your accounting period end in which you can make a claim.

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